1. Pipeline Abandonments and ConversionsPipeline Abandonments and Conversions
2014 FEPA Summer Symposium2014 FEPA Summer Symposium
July 24, 2014July 24, 2014
Berne L. Mosley, Energy Projects Consulting, LLCBerne L. Mosley, Energy Projects Consulting, LLC
2. Complete Partial
•Remove facilities
•Isolate and abandon in place
•Capacity lease
•Sell
•Downrate (pipeline MAOP or
turbine hp for example)
•Downsize (smaller diameter)
•Limit service schedule
2
Personal Rule of Thumb:
Action taken to temporarily inactivate a facility which can be
reversed in a short period of time to restore service upon
demand and with little/no ground disturbed is not
abandonment.
Examples: closing and locking valves or removing EFM
equipment from meters
4. 4
Automatic
Blanket
Prior Notice
Blanket
Section 7
Excluded
Facilities
LNG take-away
Mainline
Storage field ∆ cap.
Leased mainline
Default mechanism for
all facilities
Replication
Cost (2013)
<$11 M $11M - $31.4M > $31.4M
Environment
“No effect” -and-
FERC Plan /
Procedures
“No effect” -and-
FERC Plan / Procedures
Public good outweighs
impacts.
Mitigation required
Misc.
Inactive 12 mos. or
consent req’d
No FT contract
Written consent if
service w/in 12 mos.
No protests
Considers protests and
alternatives
5. Pipeline Issues Creative Responses
•“Death spiral” from rising O&M
costs and falling revenue
volumes
•Declining revenue throughput so
no incentive for FT. Majority of
volumes flow on IT at discount
•New supply sources strand pipe
segments and compression.
•Policies and regulations from
other agencies
•Spin-down / spin-off of assets to
form stand-alone regional
pipeline
•Conversion to transport liquids or
other energy forms
•Create gathering system for gas
supply from new basins (i.e.,
shale)
•Traditional sale to third party
with lower cost structure
5
7. 7
Producers “free to the pool” or with deeply discounted rates
may have to negotiate contracts with new owner. If producers
not currently paying for transport of the affected gas, FERC
regulations do not give them much weight in the analysis.
When abandoning regional assets to new company, shippers
may now have multiple rates for single haul. If these are
IT/FT shippers, proposed new company needs to settle with
affected customers to avoid protests.
Offshore producers may argue that their production will be
stranded upon abandonment. Possible claim onshore as well,
but it is not as expensive to establish new outlet. FERC takes
this issue very seriously if the offshore platform is not dually
connected and no other pipelines are in the vicinity.
8. 8
End user concerns in cases of physical abandonment or
conversion to other energy transport include operational reliability
of the existing pipeline they contracted with.
On the other hand, FT customers may be pushing for
abandonment and will support application in order to reduce rates
by removing these assets and associated O&M from the pipeline
rate base.
Landowners have significant rights regarding physical
abandonment across their property. If they want complete
removal, but pipeline and environmental assets favor abandoning
in place, FERC will balance the competing valid arguments.
Landowners in general are more sophisticated, partly due to
FERC outreach process, in negotiating for the method of
abandonment and mitigation they expect.
10. 10
Environmental groups that were focused on E&P activities
now view the pipeline application process as a vehicle to
thwart further shale development, including protests against
gathering system designation.
State and federal agencies have become more involved in the
future obligations regarding disposal of pipeline assets.
The abandonment of pipelines in traditional producing basins
impact state and regional public policy, including issues such
as jobs, tax revenues, future site cleanup, and national energy
policy.
11. With aging infrastructure, and more stringent integrity and
testing requirements, there is increased pressure to
abandon interstate pipelines.
Pipeline companies will increase efforts to find creative
alternatives to traditional pipeline removal or abandonment
in place.
FERC regulations, and those of other agencies having over-
sight, will add to the complexity of the decision of when,
and how, to abandon pipeline assets.
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13. FERC Regulation of Natural Gas and Oil
Converting Pipelines from Transporters of
Natural Gas to Transporters of Oil and
Petroleum Products…and Why Now?
FERC’s Role in Such Conversions – Two Case
Studies (and info on a third)
Challenges to Accomplishing Such Conversions
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15. The Commission's responsibilities include:
Regulation of pipeline, storage, and liquefied natural gas
facility construction
Regulation of natural gas transportation in interstate
commerce
Issuance of certificates of public convenience and necessity
to prospective companies providing energy services or
constructing and operating interstate pipelines and storage
facilities
Regulation of facility abandonment
Oversight of the construction and operation of pipeline
facilities at U.S. points of entry for the import or export of
natural gas
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16. With respect to Natural Gas projects, FERC safeguards the environment
by:
Disclosing, analyzing and minimizing impacts where it is feasible and
reasonable to do so
Encourage applicants to communicate with relevant federal and state
natural resources agencies, Indian tribes, and state water quality
agencies, prior to submitting an application
Ensuring that all applicants perform the necessary studies to make an
informed decision on the project
Issuing environmental assessments (EA) or draft and final
environmental impact statement (EIS) for comment on most projects
Including requirements with any certificate issued to reduce
environmental impacts
Visiting proposed project areas to determine the range of environmental
issues requiring analysis and holding scoping meetings as appropriate
16
17. The Commission's responsibilities include:
Regulation of rates and practices of oil pipeline
companies engaged in interstate transportation;
Establishment of equal service conditions to provide
shippers with equal access to pipeline transportation;
and
Establishment of reasonable rates for transporting
petroleum and petroleum products by pipeline.*
FERC has no jurisdiction over construction or
maintenance of production wells, oil
pipelines, refineries, or storage facilities!!!
* See Declaratory Order (OR13-29) for jurisdictional discussion on Ethane
transportation. 17
19. Higher crude oil-to-natural gas ratio encourages drilling for oil in preference to
natural gas and makes natural gas liquids developments (e.g., ethane) relatively
more attractive than the development of dry natural gas resources.
19Source: http://www.eia.gov/todayinenergy/detail.cfm?id=5830
20. Natural gas is a combustible mixture of hydrocarbon gases. While
natural gas is formed primarily of methane, it can also include
ethane, propane, butane and pentane, and other constituents
Source: http://www.naturalgas.org/overview/background.asp 20
22. Nearly half of the world’s ethylene will be
produced from ethane and liquefied petroleum
gas (LPG) by 2023, mostly at the expense of
naphtha.
The feedstock shift is most dramatic in North
America, where prolific shale gas
production yields cheap ethane in the US and
is driving a petrochemical resurgence.
Source: http://www.hydrocarbonprocessing.com/Article/3257517/Ethane-LPG-
to-trump-naphtha-as-preferred-ethylene-feedstocks.html 22
23. The ethane can be removed from natural gas,
but for petrochemical uses it must first be
“cracked”, typically using steam…
There are few crackers in and around the
Marcellus and Utica Shale Plays…
There are many crackers in the Gulf Coast…
There is unused / spare capacity on
traditional South-to-North long haul
pipelines…
Hence the gas-to-liquids pipeline conversions!
23
26. Tallgrass was authorized to abandon approximately 432.4 miles of
mainline pipeline facilities for the purpose of re-converting the facilities
into crude oil pipeline facilities, and to construct and operate certain
replacement facilities in order to continue natural gas transportation
service to its existing firm customers.
To satisfy NEPA, FERC issued an EA (not an EIS) that addressed
geology, soils, water resources, wetlands, vegetation, fisheries, wildlife,
threatened and endangered species, land use, recreation, visual
resources, cultural resources, air quality, noise, safety, cumulative
impacts, and alternatives. In addition, section B.9 of the EA discussed
the cumulative impacts of the conversion to oil -- the construction of:
260 miles of 24-inch-diameter pipeline (Cushing Lateral) from KS to OK
that would connect to Tallgrass (Pony Express) Pipeline from Lincoln
County, Kansas to Cushing, Oklahoma;
16 span replacements and eight electric oil pump stations along the
existing Pony Express Pipeline segment;
2 electric oil pump stations along the Cushing Lateral.
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27. 27
The abandonment by transfer of the 432.4 miles of PXP would have no
ground disturbance and is not addressed further. The abandonment
and/or modification of aboveground facilities would cause minimal
disturbance entirely within existing work areas or existing right-of-way.
Regarding the cumulative impacts of the Cushing Lateral…“[s]ince the
FERC does not regulate the sitting of oil pipelines, we do not have
detailed information concerning the environmental impacts of the
planned Cushing Lateral, other than what TIGT has provided, as
discussed above. The environmental review would be subject to the
regulations of the USACE and other applicable Kansas and Oklahoma
state permitting agencies. We conclude that the Project would represent
a negligible contribution to the overall cumulative impacts of the
combined oil transportation project discussed above."
Relevant Language from the EA:
29. Trunkline was authorized to abandon by sale to an affiliate
approximately 770 miles of mainline transmission pipeline and
appurtenant facilities for conversion to oil pipeline
transmission service, and to abandon in place certain
mainline compression facilities that it would no longer need
after the pipeline facilities are abandoned, while still
maintaining natural gas service to its firm customers.
To satisfy NEPA, FERC issued an EA (again, NOT an EIS)
that addressed geology, soils, water resources, wetlands,
vegetation, fisheries, wildlife, threatened and endangered
species, land use, recreation, visual resources, cultural
resources, air quality, noise, safety, cumulative impacts, and
alternatives.
29
30. Relevant Language from the EA:
“After the abandonment, Trunkline would no longer be responsible for
the facilities and the Commission will have no remaining jurisdiction.
Thus, the EA did not include a detailed analysis of the impacts that could
occur after the abandonment. However, the EA did provide available
information about the anticipated conversion and about potential
cumulative impacts associated with the construction of facilities to
support the proposed future use.”
and
“In the event that the abandoned pipeline is converted for use in oil
transportation, the relevant authorizing and permitting state and federal
agencies, including the U.S. Department of Transportation, are
responsible for addressing environmental and safety matters.”
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31. 31
From the application:
• Texas Gas sought authority to abandon approximately 623 miles of
natural gas pipeline segments from Eunice, Louisiana to Hardinsburg,
Kentucky and associated facilities.
• All of Texas Gas’s installed facilities south of Eunice and north of
Hardinsburg would remain in interstate natural gas transportation service.
FERC issued an Environmental Assessment
[emphasis added] on February 14, 2014, but
project was withdrawn on June 3, 2014…
• Following abandonment, Texas Gas would
continue to provide natural gas transportation service
on its remaining pipeline facilities.
• After receipt of abandonment authority, the
pipeline segments will be taken out of natural gas
service and repurposed for use in natural gas liquids
(“NGL”) service.
33. As Noted Above:
FERC has no jurisdiction over construction or maintenance of
production wells, oil pipelines, refineries, or storage facilities
This means:
Products pipelines are “sited” on a State-by-State basis (if a
pipeline crosses 10 states, then 10 different siting agencies may
be involved)
This doesn’t mean:
Products Pipelines are exempt from other Federal agency
requirements, or requirements of State agencies administering
Federal requirements (i. e., CZMA, CWA, CAA, etc.)
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34. Natural Gas is transported by being compressed by large
reciprocating or turbine motors at compressor stations
Compressor stations are sited along the length of a
pipeline based on flow engineering analysis of
transportation distances, transportation volumes and
operating & delivery pressures
Liquids are “pumped” and pumping stations are sited
along the liquids pipeline based on hydraulic analysis
The locations of historic compressor station
sites may not align with the required pumping
station sites, leading to new, and possibly
significant, construction for gas-to-liquid
conversion projects!
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35. The trend to convert unused natural gas
pipelines to oil- and products-pipelines will
continue, owing to higher oil-to-gas prices, and
the market for NGLs
FERC will continue to assert economic
jurisdiction on such pipelines
FERC’s NEPA role in conversion projects will be
limited
Project proponents for conversion projects will
still be subject to certain Federal and State
oversight
35
37. FERC – Federal Energy Regulatory Commission;
the agency responsible for interstate and some
offshore transportation of natural gas, oil and
“oil products”
NGA – Natural Gas Act; law that gives natural
gas companies authority to construct & operate
(Sec 7(c)) and abandon (Sec 7(b)) interstate
natural gas facilities
DOT – Department of Transportation; regulatory
agency with safety authority over interstate gas
and oil facilities
38. BSEE – Bureau of Safety and Environmental
Enforcement; regulatory agency responsible for
safety, environment and conservation of
offshore oil and natural gas resources
Blanket Certificate Program – a subprogram
of a Section 7(c) application, comprising
“automatic” and “prior notice”
39. Blanket Certificate Program – a subprogram
of a Section 7(c) application, comprising
“automatic” and “prior notice”
FT – Firm Transportation; transportation
guaranteed at full contract level of service
IT – Interruptible Transportation; transportation
provided on an “as available basis” with no
level-of-service guarantees
40. MAOP – Maximum Allowable Operating Pressure;
the pressure, in PSI, at which a pipeline is
allowed to operate, based on the yield strength
of the steel and DOT requirements
EFM – Electronic Flow Meters; meters that
measure the amount of gas flowing through a
pipe
